Paper LBO Mental Math for PE Interviews
"Paper LBO mental math means reducing entry value, leverage, exit equity, MOIC, and rough IRR into a clean timed sequence."
— WSM Direct AnswerPE interviews often test whether you can explain sponsor returns without hiding inside Excel. A good paper LBO answer is fast enough to finish and structured enough for the interviewer to follow.
Entry is 10x EBITDA on $80M EBITDA with 5x debt. Sponsor equity?
▸ About $400M.
Enterprise value is $800M. Debt is 5 x $80M, or $400M. Sponsor equity is EV minus debt, so $400M.
Exit equity is $760M on an initial equity check of $400M. MOIC?
▸ About 1.9x.
Divide 760 by 400. That is 1.9x, a clean first-pass return before estimating IRR.
A 2.0x MOIC over five years implies roughly what IRR?
▸ About 15%.
Use the Rule of 72: doubling in five years means 72 divided by 5, or about 14.4%, which rounds to 15%.
How Wall St Math Helps
Wall St Math trains the percentage, multiplication, and Rule of 72 pieces behind paper LBOs so return math feels less fragile under interview pressure.